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FRM Part I · FRM Exam Part I · GARP Code of Conduct

A risk analyst at a bank is preparing a risk report for senior management. She finds that a model assumption she used last quarter was flawed, which understated the reported exposure. No one else has noticed. Under the GARP Code of Conduct, what should she do?

She should promptly disclose the error to the appropriate parties and correct the reporting. The GARP Code demands honesty and integrity and forbids knowingly misrepresenting facts, so hiding an understated exposure, even by fixing it only going forward, would leave management misinformed.

  1. ACorrect the error in future reports but not mention the earlier one, since the figures are now immaterial
  2. BDisclose the error promptly to the appropriate parties and correct the reportingCorrect
  3. CWait until the annual audit to see whether the error is detected
  4. DTell only her direct colleagues so the matter is handled informally

Explanation

The Code requires members to act with honesty and integrity, and to not knowingly misrepresent facts. Concealing a known error that understated exposure would mislead management. Prompt disclosure and correction is the required conduct. Quietly fixing it going forward still leaves earlier users misinformed.

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